A lot has been written about HP’s shock write-down of $8.8 billion on its purchase of Autonomy in the vendor’s Q4 results (HP’s year-end was 31 October). It’s not so much that there’s been a write-down – these things happen – but rather the figure attached to it. As if that wasn’t enough, HP has alleged it discovered "serious accounting improprieties" and a "wilful effort by Autonomy to mislead shareholders". The matter has been reported to the Securities & Exchange Commission, the US Department of Justice and the UK’s Serious Fraud Office.
In reply, former Autonomy CEO Mike Lynch published an open letter to the company’s board of directors on 27 November, stating: "I utterly reject all allegations of impropriety." The letter raised a number of questions over the company’s allegations and concluded with the following lines: "I have been truly saddened by the events of the past months and am shocked and appalled by the events of the past week."
I’m not going to get into a detailed summary of the whys and wherefores of the dispute between HP and Lynch. The allegations are being investigated and, in due course, someone will have been found to be right and someone wrong. As I don’t have HP’s evidence to hand or the resources of the SEC, Department of Justice and SFO (I wish journalism paid that well!), I’m going to leave them to get on with it.
What I am going to look at is something which says a lot about HP’s acquisition strategy in recent times and what it says isn’t particularly flattering. Over the last 15 months or so, HP has written off more than $17.6 billion on three acquisitions. It started small with a $885 million write-down on Palm in HP’s Q4 2011 results, although it’s worth pointing out that while the sum is minor as a percentage of the overall amount in write-downs (5% since you ask) it’s fairly spectacular when set against the $1.2 billion HP paid for Palm (just under 74%).
But things really got going big time with the $8 billion write-down on EDS in Q3 this year. HP paid $13.9 billion to acquire EDS, so the write-down represents nearly 58% of the purchase price (and 45% of HP’s total write-down figure). While that’s a lot of money, I should point out that it is a smaller overall percentage of the purchase price than the Palm write-down.
Perhaps, at this point, we might still be inclined to give HP the benefit of the doubt. After all, there have been other acquisitions which haven’t resulted in massive write-offs, such as 3Com, 3Par and ArcSight (although the total value of those deals was a mere $6.6 billion).
And so we move on to Autonomy. As far as I can ascertain, HP paid around $10.2 billion for Autonomy in 2011. It has now written off $8.8 billion against the company. Even by HP’s standards, this one is a whopper, representing 86% of the purchase price and 49.7% of the total write-down figure since it took the Palm hit. In total, HP has spent around $25.3 billion on the acquisitions of Palm, EDS and Autonomy and made write-downs of $17.685 billion against them (70% of the money it spent).
Anyway you look at it, the only thing impressive about those figures is their size (and not in a good way). To put it in perspective, in the course of 15 months or so, HP has written off more money than has been taken out of the Irish economy in the austerity budgets outlined in December 2009, 2010 and 2011. The company has taken write-downs equivalent to around EUR*13.6 billion, whereas Ireland’s three budgets have sucked EUR*11.6 billion out of the economy.
Whatever the result of the current battle between the company and Lynch over who did what with Autonomy, it’s worth bearing in mind that even without the Autonomy acquisition, HP would still have written down nearly $9 billion from EDS and Palm. Those are staggering figures. It’s perhaps a measure of where HP is now that most of the focus to date has been on the dispute over what forced the company to make a write-down over Autonomy rather than the actual amount involved.
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